Interim Results 2017/18

4 Oct 2017


On a continuing operations basis  
Change at
constant rates
Change at actual rates
Headline measures1:          
Group sales2 £25.2bn £24.4bn   0.7% 3.3%
Group operating profit before exceptional items3 £759m £596m   23.7% 27.3%
Diluted EPS pre-exceptional items, IAS 19 finance costs and IAS 39 fair value remeasurements4 5.46p 3.19p     71.2%
Dividend per share (interim) 1.0p -     n/a
Retail operating cash flow5 £1,139m £955m     19.3%
Net debt5,6 £(3,260)m £(4,352)m     down 25.1%
Statutory measures:
Revenue £28.3bn £27.3bn   1.4% 3.7%
Operating profit £885m £515m   67.4% 71.8%
Profit before tax £562m £71m   667.6% 691.5%
Diluted EPS 5.21p 0.42p     1,140.7%


Positive sales2 and profit3 growth, strong cash5 generation

  • Group sales2 up 3.3% to £25.2bn – seventh consecutive quarter of growth
  • UK like-for-like sales7 up 2.2%; transactions up 0.4%; volumes8 up 0.3%
  • Strong fresh food volume growth in the UK of 1.5% driven by ongoing improvements in our offer
  • Group operating profit before exceptional items3 up 27.3% to £759m; UK & ROI up 21.1% to £471m
  • Group operating margin3 up to 2.7% from 2.2% last year; on track for 3.5-4.0% ambition by 2019/20
  • Improved profit margin in Central Europe (up 132 basis points) and in Asia (up 146 basis points)
  • Retail operating cash flow5 up 19.3% to £1.1bn; Retail free cash flow5 of £586m
  • Triennial pension review concluded; annual contributions to increase by £15m to £285m from April 2018
  • Interim dividend of 1.0p per share reflects improved performance and Board confidence
  • Statutory revenue up 3.7% to £28.3bn; Profit before tax up £491m to £562m

Further progress against each of our six strategic drivers

  • Brand health9 continues to strengthen; voted ‘Britain’s favourite supermarket’ for 3rd consecutive year10
  • Further cost savings of £259m achieved in 1H towards the £1.5bn medium-term target; £485m to date
  • Generated £1.1bn of retail operating cash5; £237m underlying working capital11 inflow
  • Improving the mix across geographies and channels; 1.6% like-for-like sales growth in our UK Extra format
  • Released a further £175m value12 from property; 50 sites sold; 0.4m sq. ft. space re-purposed
  • Innovations including launch of contactless Clubcard; nationwide roll-out of same day delivery service; further 807 new products introduced

Dave Lewis, Chief Executive:

“We are continuing to make strong progress. Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half what they were when we started our turnaround three years ago. All of this is possible because of the focus we have placed on serving shoppers a little better every day. Our offer is more competitive and more customers are shopping at Tesco.

Today’s announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date and in doing so, create long-term, sustainable value for all of our stakeholders.”

Like-for-like sales performance7

UK & ROI 0.6% 1.1% 0.9%   2.2% 2.1%   2.1%
 UK 0.6% 1.2% 0.9%   2.3% 2.1%   2.2%
 ROI 0.2% (0.4)% (0.1)%   0.2% 2.0%   1.1%
Central Europe 2.0% (0.1)% 0.9%   (0.4)% 0.6%   0.1%
Asia 3.2% 0.4% 1.8%   (6.0)% (10.7)%   (8.3)%
Group 1.0% 0.9% 1.0%   1.0% 0.6%   0.8%

Headline Group results

In these results, we have redefined two alternative performance measures to help improve understanding of earnings per share momentum and free cash flow. We have also provided more detail in our presentation of free cash flow and net finance costs and reported ‘Central Europe’ and ‘Asia’ as separate segments, aligning to our Executive Committee structure. A full Group income statement can be found on page 14.

26 weeks ended 26 August 2017
On a continuing operations basis
1H 2017/18   1H 2016/17   Year-on-year change
exchange rates)
  Year-on-year change
exchange rates)
Group sales (exc. VAT, exc. fuel)2 £25,172m   £24,402m   0.7%   3.3%
Fuel £3,176m   £2,936m   7.7%   8.2%
Revenue (exc. VAT, inc. fuel) £28,348m   £27,338m   1.4%   3.7%
Group operating profit before exceptional items3  
- UK & ROI £471m   £389m   20.3%   21.1%
- Central Europe £61m   £17m   235.3%   258.8%
- Asia £141m   £101m   24.8%   39.6%
- Tesco Bank £86m   £89m   (3.4)%   (3.4)%
Include exceptional items
Group operating profit £885m   £515m   67.4%   71.8%
Group profit before tax before exceptional items, IAS 19 finance costs and IAS 39 fair value remeasurements £575m   £353m       62.9%
Group statutory profit before tax £562m   £71m       691.5%
Diluted EPS before exceptional items, IAS 19 finance costs and IAS 39 fair value remeasurements 5.46p   3.19p        
Diluted EPS 5.21p   0.42p        
Basic EPS 5.22p   0.42p        
Capex13 £0.4bn   £0.3bn        
Net debt5,6 £(3.3)bn   £(4.4)bn        
Cash generated from retail operations5 £1.1bn   £1.0bn        


  1. The Group has defined and outlined the purpose of its alternative performance measures, including its headline measures, in the Glossary on page 51.
  2. Group sales exclude VAT and fuel. Sales growth shown on a comparable days basis.
  3. Excludes exceptional items by virtue of their size and nature in order to reflect management’s view of the performance of the Group.
  4. Headline earnings per share measure redefined to exclude IAS 39 fair value remeasurements as well as exceptional items and IAS 19 finance costs. Full details of this measure can be found in Note 9, starting on page 36.
  5. Net debt, retail operating cash flow and retail free cash flow exclude the impact of Tesco Bank in order to provide further analysis of the retail cash flow statement.
  6. Net debt includes both continuing and discontinued operations.
  7. Like-for-like is a measure of growth in Group online sales and sales from stores that have been open for at least a year at constant foreign exchange rates.
  8. Excludes tobacco and fuel.
  9. As per YouGov BrandIndex August 2017.
  10. ‘Britain’s favourite supermarket’ awarded at the Grocer Gold Awards ceremony on 13 June 2017.
  11. Working capital excluding the impact of exceptional items.
  12. Value released from property relates to gross proceeds from property disposals in the half.
  13. Capex is shown excluding property buybacks. Statutory capital expenditure (including property buybacks) for the 26 weeks ended 26 August 2017 was £0.6bn (LY £0.5bn).

Creating value for our key stakeholders

We have continued to build momentum throughout the first half and, guided by the six strategic drivers that we set out in October 2016, we are creating long-term and sustainable value for our key stakeholders.


  • largest improvement amongst peers in the ‘customers recommend’ measure (+11 NPS)
  • lowest level of food price inflation for customers amongst peers; c.1% lower than rest of market
  • further simplified our pricing, reducing the number of multi-buy promotions year-on-year by 10%
  • voted ‘Britain’s favourite supermarket’ by customers for the third consecutive year
  • awarded ‘Supermarket Bakery Business of the Year’ for the first time since 2008
  • our exclusive fresh food brands continue to be popular with customers - featuring in over 70% of baskets
  • offered customers an easier and affordable way to make healthy choices through our “Little Helps to Healthier Living” campaign; highest ever score for customers saying Tesco helps them lead
  • healthier lives
  • led the UK market by covering the cost of VAT on women’s sanitary products
  • enhanced our online offer to include the introduction of monthly subscription plans, nationwide roll-out of same day delivery and the launch of ‘Tesco Now’ offering delivery within 1 hour
  • launched a series of improvements to Clubcard including contactless functionality for all 16m active Clubcard customers in the UK, a new Clubcard app and enhancing our range of Clubcard Deals partners


  • announced a record 10.5% increase in hourly pay for UK store colleagues over the next two years
  • simplified our structures and introduced a new service model across the Group
  • further improvement year-on-year in colleagues recommending us as a ‘great place to work’ (+1 NPS) and a ‘great place to shop’ (+3 NPS)
  • held “Million Miles” and “Great Tesco Walk” events - £21m raised to date for our charity partners
  • provided 9,700 free health checks to colleagues as part of our Health Month

Supplier partners

  • continued to develop our partnerships with key suppliers; doubled volumes with c.100 suppliers to date
  • completed our work to agree standardised payment terms with our largest suppliers
  • joined forces with 24 of our largest food suppliers to tackle global food waste
  • worked with our agricultural partners to utilise entire crop flushes (e.g. strawberries, lemons and cauliflowers) minimising waste and delivering great value for customers
  • introduced over 800 new products for customers including innovations in fresh produce, such as miniature avocados and a fun-shaped kids vegetable range


  • generated £1.1bn of retail operating cash flow, including underlying working capital inflow of £237m
  • completed the sale of our remaining stake in Lazada for net cash consideration of £196m
  • regained sole ownership of 7 stores from British Land; raised £175m in property-related proceeds
  • reduced net debt from February 2017 by £469m; early repayment of £500m of long-dated bonds
  • triennial pension review concluded; annual contributions to increase by £15m to £285m from April 2018
  • IAS 19 pension deficit measure reduced to £2.4bn (post-tax); total indebtedness reduced to £13.0bn
  • proposed merger with Booker progressed to Phase 2 review
  • announced interim dividend of 1.0p per share; targeting around two times EPS cover in medium term

Looking ahead

We are making good progress towards the medium-term ambitions shared in October 2016 and remain firmly on track to reduce our costs by £1.5bn, generate £9bn of retail cash from operations and improve operating margins to between 3.5% and 4.0% by 2019/20. In addition, by maintaining a disciplined approach to capital and further reducing debt we can continue to strengthen the balance sheet, return to investment grade credit metrics and generate an increasing level of free cash flow. Capital expenditure in the current year is now expected to be £1.1bn. Going forward, we expect capital expenditure to remain between £1.1bn and £1.4bn per year.

Our proposed merger with Booker is currently undergoing an in-depth ‘Phase 2’ investigation by the Competition and Markets Authority (CMA). Provisional findings are expected to be made public by the CMA by the end of this month, ahead of a final report by the end of this year.


Investor Relations: Chris Griffith 01707 912 900
Media: Jane Lawrie 01707 918 701
  Philip Gawith, Teneo Blue Rubicon 0207 420 3143

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A meeting for investors and analysts will be held today at 9.00am at London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. Access will be by invitation only. For those unable to attend, there will be a live webcast available on our website at This will include all Q&A and will also be available for playback after the event. All presentation materials, including a transcript, will be made available on our website.


This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", “should”, "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is based on information available to Tesco as of the date of the statement. All written or oral forward-looking statements attributable to Tesco are qualified by this caution. Tesco does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances.

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